Types of Contracts for works and

Goods and Guidelines for their choice

1
 Usual Codal Provisions

• PWD Codes discuss in brief generally only

two types of contracts, namely Lump-sum
and Schedule (Item Rate);
• Development projects of Government
Departments/PSUs and local bodies are
sometimes complex and necessitate use of
other alternative types of contracts.

2
 Choice of Type of Contracts

• Choice of type of contract has to be made at

the initial stage itself, preparation of
Procurement Plan;
• Type of contract affects the subsequent
stages of procurement, the content of tender
document etc;

3
 Choice of Type of Contracts (contd)

• Factors which affect/influence the choice of type of

contracts;
– Nature and complexity of works;
– Size and duration of contract;
– Degree of definition of the works and the element of
risk/uncertainty;
– Status of design(preliminary or final);
– Technical capability, design and supervisory resources
of the Employer;
– Financial resources and budgetary constraints;
– Previous experience of Employer on the type of contract
4
 Lump-sum or all inclusive contract
(Works)
• Tenderer quotes a fixed sum for execution of work as
per design and specification within stipulated time;
• Payment is linked to stage of completion of an
activity;
• Relatively easy to administer;Inflexible for design
changes
• Normally used for small, short duration, well defined,
detailed works;
• Example standard housing, bus shelters, primary
health centre etc.
5
 Item rate/unit rate/ad-measurement
contract (Works and Goods supply)
• Most common type of contract;
• Tenderer quotes unit rates for different items;
• Unit rates is inclusive of the costs of labour, materials,
equipment;
• Detailed measurements are recorded and payment
made at the tendered unit rates;
• Flexible to handle variations due to changes in design;
• Higher supervisory costs;
• Amenable for manipulation

6
 Percentage rate contract (Works)

• Contractors to submit the %age above or below

the current schedule of rates;
• Simple to comprehend for the contractor;
• Decision on tender immediate;
• Irrational tender, same percentage above or below
different category of items;
• Appropriate for small value contracts, when items
of work are few and belong to same category.

7
 Cost plus contracts (Works)

• Periodic reimbursement of contractor’s costs of

inputs plus fee to cover overheads;
• Fee may be fixed or percentage of measured costs;
• Early mobilization possible in emergency situations
or poorly defined works;
• If fee is fixed little incentive to produce quality work;
If fee is %, limited incentive to be cost effective;
• Appropriate for open ended emergency situations;
• Mostly used in private sector.

8
 Supply and erect/install, commission and
test contracts (Combination of Supply and
Works)
• Single responsibility;
• Management is simple;
• Direct cost is likely to be more;
• Appropriate for power plants, water
pumping plants, water treatment and
sewerage treatment plants;
telecommunication projects etc
9
 Design and Build Contract (Works)

• Innovative competitive designs are possible,

which result in economy, better design and
aesthetics;
• Pre-qualification is an essential feature;
• Appropriate for important buildings, major
bridges, complex flyover, navigation works,
airports and other infrastructure works

10
Turnkey contracts (Combination of Works
and Supply of Goods)
• Tenders for alternative systems and processes;
• Two stage tendering procedure followed;
• Usually Lump sum with price adjustment;
• Employer is able to choose the best available
processes and thus effect economy;
• Appropriate for procurement of complex industrial
process plants such as steel mills, fertilizer plants,
food processing, oil refineries etc.

11
 Management Contracts (Combination of
Works and Supply of Goods)
• Firm acts in the role of a contractor that
does not actually perform work directly but
manages the work of other sub-contractors;
• Bears full responsibility and risk for price,
quantity and timely performance of
contract;
• Appropriate for major infrastructure
projects such as airports, sea ports etc.

12
 Public Private Participation contracts
(Mostly infrastructure Projects)
• BOT, BOO, BOOT contracts;
• Concessionary turn key type of contract including
financing in addition to design and construction,
operation and maintenance of public and private
revenue earning projects;
• It is a way of overcoming the budgetary constraints
to acquire the needed infrastructure for growth;
• Appropriate for profit earning projects such as
power generation and distribution, toll roads, and
other projects.
13